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1. Welcome © 2012 Alvarez-Glasman & Colvin www.agclawfirm.com

2. © 2012 Alvarez-Glasman & Colvin Redevelopment Woes and Opportunities What real estate professionals should know about the current state of redevelopment in California By Matthew M. Gorman, Esq. Today’s Presentation: Alvarez-Glasman & Colvin Matthew M. Gorman, Esq.

3. About us Alvarez-Glasman & Colvin Alvarez-Glasman & Colvin is a boutique law firm specializing in representing public agency and private sector clients in the complex fields of real estate, land use and development, environmental law, employment and labor relations, public safety and police litigation, and general liability and risk management. Founded in 1985 by the Firm’s managing partner, Arnold M. Alvarez-Glasman Matt Gorman represents public and private parties in land use, redevelopment, and sustainable development projects For more info: www.agclawfirm.com © 2012 Alvarez-Glasman & Colvin

4. OVERVIEW OF REDEVELOPMENT © 2012 Alvarez-Glasman & Colvin

5. Summary of how redevelopment agencies worked • TAX INCREMENT: • Agencies utilized tax increment as revenue stream to secure bonds and other financing for development of projects that eliminated blight in communities © 2012 Alvarez-Glasman & Colvin

6. Summary of how ABx1 26 dissolved redevelopment agencies • Agencies dissolved and their assets liquidated to the State. • Successor agencies and other entities established to wind-down agencies’ affairs. • On-going obligations to be honored (existing agreements, bondholder/ investor rights, etc.). © 2012 Alvarez-Glasman & Colvin

7. Overview of the current state of redevelopment agencies • The Motosantoscase affirmed the elimination of redevelopment agencies • As of February 1, 2012, all agencies are dissolved. • Successor agencies are in the process of winding-down redevelopment affairs and coordinating the transfer of assets to the State. © 2012 Alvarez-Glasman & Colvin

8. Ambiguities in ABx1 26 • The law is extremely ambiguous and unclear on many key points. • Key terms are currently being interpreted differently by agencies, counties, and the state. • Several bills are pending to clarify and revise ABx1 26 • KEY: things are unclear and evolving. © 2012 Alvarez-Glasman & Colvin

9. HOW REDEVELOPMENT AGENCIES ARE WINDING DOWN © 2012 Alvarez-Glasman & Colvin

10. The legal structure of the wind-down process • Dissolved redevelopment agencies are managed by successor agencies in each community. • Successor agencies are overseen by oversight boards which have approval over most decisions, subject to State control. • State Dept. of Finance (DOF) has authority to approve and deny most issues decided by oversight boards and successor agencies. © 2012 Alvarez-Glasman & Colvin

11. How redevelopment assets are liquidated or returned to the State • Successor agencies and oversight boards are to preserve all redevelopment assets for the benefit of the State, and must liquidate all properties in a manner that is expeditious but which maximizes return of dollars to the State. • With exceptions, successor agencies may not enter into new contracts, but must preserve redevelopment funds for the State. • Existing contracts are honored if they are “enforceable obligations.” © 2012 Alvarez-Glasman & Colvin

12. How redevelopment assets are liquidated or returned to the State • What is an “enforceable obligation”?: • All former redevelopment agency contracts must be listed as enforceable obligations on a successor agency’s payment scheduled called their “ROPS” (recognized obligations payment schedule). © 2012 Alvarez-Glasman & Colvin

13. How redevelopment assets are liquidated or returned to the State • The ROPS must be approved by the successor agency, approved by the oversight board, and approved by DOF. • Once approved, the items on the ROPS are enforceable obligations which the successor agency may lawfully honor. • A successor agency is not authorized to honor contracts which are not listed on an approved ROPS. © 2012 Alvarez-Glasman & Colvin

14. Redevelopment Property Tax Trust Fund • Funds which previously would have gone to redevelopment agencies are held by County Auditor-Control in a trust fund, to be disbursed per ABx1 26’s requirements. • Obligations which are listed on an agency’s approved ROPS may be disbursed by the County to the agency. • The County has no authority to disburse funds for obligations which are not on the approved ROPS. © 2012 Alvarez-Glasman & Colvin

15. Importance of the ROPS • Because the ROPS is key to a successor agency’s legal authority to honor contracts and obtain fund from the County, it is a critical piece of the ABx1 26 framework. © 2012 Alvarez-Glasman & Colvin

16. CURRENT REDEVELOMPENT PROBLEMS © 2012 Alvarez-Glasman & Colvin

17. Valid projects not listed on ROPS • Do projects get funded?: • If a city or county has an obligation to be paid from tax increment funds, but that obligation is not on the ROPS, then problems will arise: the obligation will either have to be paid from another funding source (e.g., general fund), or may give rise to a default. © 2012 Alvarez-Glasman & Colvin

18. Valid projects not listed on ROPS • Example: • Some agreements for the financing of redevelopment projects involve investors who are guaranteed regular payments, but if those agreements are not listed on the approved ROPS, payments must either be made by other sources or result in defaults. © 2012 Alvarez-Glasman & Colvin

19. Potential impacts to bondholders and investors • Investors in redevelopment projects that are not listed on an approved ROPS are at risk of default. • In some cases, DOF has been responsive to approve these items on ROPS, but in other cases it’s not clear whether approval will be given. © 2012 Alvarez-Glasman & Colvin

20. Contracts that are “against public policy” • ABx1 26 allows otherwise valid contracts to be excluded from the ROPS if they are “not otherwise void as violating … public policy.” • No guidance or authority is provided on how this requirement is interpreted, exposing many types of otherwise valid contracts to exclusion from ROPS. © 2012 Alvarez-Glasman & Colvin

21. Contracts that are “against public policy” • Effect: • Exclusion from the ROPS will likely mean a void contract or a contract which cannot be performed by the agency – potentially exposing otherwise valid contracts to termination without cause. © 2012 Alvarez-Glasman & Colvin

22. Who’s in control? • The numerous “moving parts” involved in ABx1 26 are difficult to manage and it’s unsure who has control over certain functions. • Although DOF has authority to approve or deny items on the ROPS, who decides if an item is “against public policy”? • If investors’ interests are threatened, do they sue the successor agency, the oversight board, the County, DOF, or all of them. © 2012 Alvarez-Glasman & Colvin

23. What are “administrative costs”? • ABx1 26 limits the costs that a successor agency may incur to administer its winding-down affairs (“administrative costs”). • “Administrative costs” may include attorney fees, staffing, consultants, marketing and liquidation costs, etc. • It is unlikely that agencies can adequately fund these activities through the limited administrative cost allowance permitted under ABx1 26. © 2012 Alvarez-Glasman & Colvin

24. Local government reliance on redevelopment reimbursement • Many redevelopment agencies had joint agreements between the redevelopment agency and the city which provided reimbursement to the city of certain redevelopment funds and other financial arrangements. • The cities rely on these agreements to help fund general municipal services (including police and fire service and similar public safety services). © 2012 Alvarez-Glasman & Colvin

25. Local government reliance on redevelopment reimbursement • In many instances, DOF has rejected these city-agency agreements on the ROPS, meaning that a revenue source which cities relied on might not be available: this exposes many cities to extreme budget problems, cash flow problems, and could create a severe budgetary crisis for some cities which relied on those funds to balance their books. © 2012 Alvarez-Glasman & Colvin

26. OPPORTUNITIES POSED BY THE WIND-DOWN PROCESS © 2012 Alvarez-Glasman & Colvin

27. Acquisition of redevelopment property being liquidated • Because agencies must liquidate their properties, real estate professionals may find numerous potential deals created as a result of ABx1 26. • Note that agencies must liquidate properties in a means that maximizes revenues to the State – so “windfall” deals are unlikely. • However, because redevelopment properties often have unique characteristics, opportunities for unique deals are likely. © 2012 Alvarez-Glasman & Colvin

28. Enhanced bargaining power to partner with local agencies • Do to the fiscal pressures faced by local governments, coupled with their loss of redevelopment power, real estate professionals may have greater leverage to advance their projects. • Local governments might be more welcoming of proposed deals that would provide benefits to business and improve property in this age of tight budgets and a depressed property market. © 2012 Alvarez-Glasman & Colvin

29. Enhanced bargaining power to partner with local agencies • Although redevelopment funding is not available, local governments might be willing to offer incentives such as: expedited processing and entitlement, relaxed dedication requirements, conditions of approval which are favorable to the developer, etc. • Non-redevelopment funding (e.g., housing funds) may be available to assist projects, and opportunities for “inventive” funding structures. © 2012 Alvarez-Glasman & Colvin

30. Enhanced bargaining power to partner with local agencies • Key: • This may allow real estate professionals to form projects that draw from multiple sources in combination with city incentives (e.g., incorporating solar energy on a housing project for federal tax rebates, coupled with city housing funds and relaxed dedication requirements, to make a project financially viable). © 2012 Alvarez-Glasman & Colvin

31. Enhanced bargaining power to partner with local agencies • And remember: • Local governments retain non-redevelopment powers, such as powers to approve development agreements under the Planning & Zoning Law, and these powers may serve as a framework to memorialize the parties’ obligations and a legal means by which the city can agree to unique project conditions. © 2012 Alvarez-Glasman & Colvin

32. Possible collaboration with oversight boards • Because oversight boards are now part of the liquidation approval process, real estate deals will need to involve their approval. • The membership of oversight boards may have their own interests, separate from the city and others, which could open further doors for collaboration. © 2012 Alvarez-Glasman & Colvin

33. Possible collaboration with oversight boards • Example: • Oversight board members include school district and community college district appointees, so proposed projects which involve properties near school sites, or which contain a school-related element (e.g., satellite school site, park/athletic facility, etc.), may be proposed to leverage support for other funding in addition to oversight board support. © 2012 Alvarez-Glasman & Colvin

34. Possible collaboration with oversight boards • Key point: • The process allows for the creation of unique projects that blend public and private dollars, pulling resources and support from a variety of city, school, and private interests. © 2012 Alvarez-Glasman & Colvin

35. POSSIBILITES FOR FUTURE CHANGES IN THE LAW © 2012 Alvarez-Glasman & Colvin

36. Key areas of pending legislation • Clarifying local government’s right to redevelopment reimbursement. • Allowing reimbursement for “reimbursement agreements.” • Determining when redevelopment agencies were “formed.” © 2012 Alvarez-Glasman & Colvin

37. Key areas of pending legislation • Narrowing the scope of “administrative costs.” • Allowing agencies to “spread the cost.” • Flexibility over expensive items (e.g., attorney fees, consultants). © 2012 Alvarez-Glasman & Colvin

38. Key areas of pending legislation • Clarifying the status of the entities. • Is an oversight board part of the successor agency or a separate entity? • Can the oversight board enter into agreements itself? • Is the successor agency a city body or independent? © 2012 Alvarez-Glasman & Colvin

39. Key areas of pending legislation • Withholding County trust funds. • Can the County withhold funds that an agency failed to return? • What about problems that appear on agencies’ audits? • Can agencies force the County to disburse trust funds? © 2012 Alvarez-Glasman & Colvin

40. WHAT REAL ESTATE PROFESISONALS SHOULD DO? © 2012 Alvarez-Glasman & Colvin

41. Review and respond to the ROPS • Examine the ROPS for any on-going projects. • Demand inclusion on the ROPS for projects not listed. • Assert claims for projects or contracts that are not included on ROPS. © 2012 Alvarez-Glasman & Colvin

42. Review bond agreements and other documents at issue • Take steps to understand what rights may be triggered if bond or other investment agreements are not on the ROPS or face potential risks. • Some bond agreements have unique provisions which may enhance risks or require prompt action. © 2012 Alvarez-Glasman & Colvin

43. Communicate with agencies on available properties and options • Now may be a good time to commence dialog with successor agencies and oversight boards on proposed projects. • Agencies are familiar with the properties they must now liquidate and may be willing to entertain discussion on unique projects. • Dialog with city officials, successor agency staff, oversight board members, and others on how projects can be assembled with properties that must be liquidated. © 2012 Alvarez-Glasman & Colvin

44. Initiate dialog with oversight boards • Build a good relationship with oversight board members. • How can you show that your project will benefit the community and reduce blight? • Show that your project will help them fulfill their obligations to the community at the State. • Make their job easy – explain how your profits are fair and will improve neighborhoods and local business. © 2012 Alvarez-Glasman & Colvin

45. Consider proposals for using liquidated properties • Redevelopment properties may have problems, so build creative projects. • Identify agency properties that can be rehabbed and funded with unique revenue sources. • Consider innovative approaches – use the synergy of the liquidation process to partner with community groups, investors, and cities to pursue unique projects for a unique time. © 2012 Alvarez-Glasman & Colvin

46. Leverage bargaining power • Present options to agencies and oversight boards. • Consider what non-monetary things a city or agency could do that would help advance projects (e.g., offer exceptions to onerous standards, relax dedication requirements, agree to expedited permitting). © 2012 Alvarez-Glasman & Colvin

47. Leverage bargaining power • Consider unique financial structures that successor agencies and their cities might be willing to fund (e.g., housing dollars, formation of assessment districts, rebates, reduced permit fees, etc.). • Assemble proposals that leverage bargaining power but are fair to cities and the public. © 2012 Alvarez-Glasman & Colvin

48. This time only comes once • Remember: • This may be a “once in a lifetime” event, so why not take advantage of it and use the opportunity to push the envelope on innovative projects. © 2012 Alvarez-Glasman & Colvin

49. CONCLUSION © 2012 Alvarez-Glasman & Colvin

50. © 2012 Alvarez-Glasman & Colvin • Located in City of Industry with offices in Napa Valley. • Projects throughout California. • Specializing in real estate, land use, municipal law, environmental law, public agency law, and redevelopment. • FoundedSustainable Building Practice Group in 2011 • FoundedRedevelopment Transition Practice Group in 2012 • For more info: www.agclawfirm.com or www.AGCecolaw.com • Matt Gorman: chairs the firm’s Sustainable Development Practice Group and is active in land use, redevelopment, and real estate law. About Alvarez-Glasman & Colvin Alvarez-Glasman & Colvin Matthew M. Gorman, Esq.